Job Work Under GST

The practice of Job Work in the manufacturing industry is existing and thriving since long and the same is going to continue in the future. Thus necessary provisions for Job Work under GST have been made to accommodate the Job Work sector in India’s largest tax reform. But before discussing the provisions laid down for job work under GST, we need to learn a few basics which we will discuss below.

What is Job Work?

Section 2(68) of the CGST Act, 2017 defines job-work as ‘any treatment or process undertaken by a person on goods belonging to another registered person’.

However in simple terms, Job work is a mechanism where a person (the Manufacturer, known as the ‘Principal’) sends his raw materials or semi-finished goods to another person (called the Job Worker) for processing, assembly, packing or any other completion process. However, the ownership of the goods is not transferred to the Job Worker and remains with the Principal. The Job Workers responsibility is just to help the Principal in the manufacturing process as per instructions given by the principal himself.

After the instructed job work is complete, the goods may be (a) returned to the Principal, (b) send to another job worker for further processing, or (c) may be sold directly from the premises of the job worker to the customer.

Procedural aspects of Job Work under GST

Job-workers are small persons (mostly daily wage earners) who are unable to comply with the discrete provisions of the law. Thus there are many procedural relaxations in the GST Law which benefit both the Principal and Job worker. These procedures (or relaxations, as you may call them) are listed below:

No tax is to be paid for removal of inputs/ capital goods to be sent for Job Work

A Principal who is registered under GST can send his inputs (i.e raw materials/semi finished goods) or capital goods to the Job Worker without payment of GST. However, the inputs (after processing) or capital goods must be returned by the Job worker to the Principal within one year or three years , respectively, from the date of sending such goods to the job-worker. In case where the goods sent have not been received back within the period as mentioned above, such goods will be treated as supplied to the job worker by the principal and tax will be payable by the principal. Also, the goods sent must be accompanied with a challan.

Input tax credit on goods sent to Job Worker

Input Tax Credit will be available to the Principal for tax paid on all goods sent to the Job Worker as mentioned above. Principal can send inputs or capital goods directly to the job-worker without bringing them to his premises and can still avail the credit of tax paid on such inputs or capital goods.

Sale of Processed Goods

After processing of the goods by the Job worker, the Principal may send the goods to another job worker for further process , return it back to his premises or sale it directly from the premises of the job worker. In case of sale of goods directly from the premises of the job worker, the Principal will have to declare the premises of the job worker as his additional place of business in his GST Registration. However, if the Job worker is registered under GST then such declaration is not required.

No liability on Job Worker for maintaining books of Accounts

The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal.

Provisions for Waste Clearing

Waste Clearing means the sale of waste and scrap generated during the process of job work at the premises of the job worker.

Waste Clearing may be done by payment of tax by the job worker if he is registered under GST. If the job worker is unregistered then the principal may sale the waste on payment of tax.

Transitional provisions

Inputs or partially processed inputs which are sent to a job-worker prior to introduction of GST under the provisions of existing law [Central Excise] will not attract GST if the following conditions are satisfied:

The goods are returned to the factory of the principal within 6 months from the date on which GST came into force; and

A declaration relating to the above will have to be given by the principal/ job worker for goods sent/received for job-work in prescribed format GST TRAN-1, within 90 days of the introduction of GST.

Any supply (i.e sale) of the above semi finished/ finished goods before expiry of 6 months from the date on which GST came into force is done only on payment of GST except where the goods are exported outside India.

Note: The period of 6 months is extendable by 2 more months.

If the above conditions are not satisfied then the Input Tax Credit availed on the goods earlier will be recovered by the government.